Opinion

Contracting Out Agreements and Wills – A ‘Love’ Story.

It is difficult to know whether Mrs Love’s will did truly give effect to her instructions. She may have intended that Mr Love have a life interest in any future home. She may have decided not to change her will...

Alexa Carey, Associate

The recent case of Love v Scannell – [2017] NZFLR 226 highlights the importance of regularly reviewing and updating your will, particularly if you are also making other arrangements for how your property should be dealt with.

A brief snapshot of the facts:

-Mr and Mrs Love married in 2005. It was Mr Love’s third marriage, and Mrs Love’s second. Mrs Love already owned a home (‘House ‘A’). Mr Love moved into House A with Mrs Love.

-Prior to getting married the Loves entered into a Contracting Out Agreement (also known as a ‘pre nup’). In that Agreement Mr and Mrs Love agreed that House A was Mrs Love’s separate property.

-In August 2008, Mrs Love made her will, in which she granted Mr Love the right to live in House A rent free until he either died, or remarried. This is often known as a ‘life interest.’

-In December 2008, Mr and Mrs Love decided to purchase another house to live in together (‘House B’). In anticipation of purchasing House B, they signed an Addendum to the Contracting Out Agreement, which recorded that the new house was to be funded 90 per cent by Mrs Love and 10 per cent by Mr Love and that the original Contracting Out Agreement remained in force.

-Mrs Love did not update her will.

-In February 2015 Mrs Love died. At the time of her death, Mr Love lived in House B.

-Mrs Love’s will did not provide a life interest for Mr Love in House B so Mrs Love’s 90% share of House B was set to go to her Estate.

The case:

Mr Love did not want money, or a distribution of relationship property, he just wanted somewhere to live until he died. Mr Love applied to the Court for an Occupation Order allowing him to continue living in House B until he died or remarried.

Occupation Orders can only be made in respect of relationship property, so Mr Love’s position was that House B was relationship property.

The Court concluded that House B was relationship property – simply because Mrs Love used proceeds of House A (her separate property) to purchase House B, it does not defeat the overriding principle that the family home is relationship property. The Court pointed out that the purpose of the Addendum agreement was to provide for unequal sharing of House B, not to categorise it as Mrs Love’s separate property – the Loves could have specifically provided for that when they made the Addendum but they didn’t.

So, there was ability for Mr Love to apply for an Occupation Order but the Court then has discretion to grant one or not.

The outcome:

Both parties achieved some success in their cases. Mr Love was granted occupation of House B but only for a fixed period of 3 years.

The Court decided that Mrs Love’s intention was to preserve her interest in House B for her children. Therefore, after the 3 year expiry House B would fall to the Estate.

It is difficult to know whether Mrs Love’s will did truly give effect to her instructions. She may have intended that Mr Love have a life interest in any future home. She may have decided not to change her will after House A was sold because she knew the Addendum agreement was signed, allowing Mr Love some funds on the sale of House B. Mrs Love was balancing the competing obligations she felt.

What this case highlights, is not the legalities of the Contracting Out Agreement or the intricacies of relationship property division, rather it shows just how important it is to ensure that your intentions are accurately recorded and are consistent across all documents that deal with how your property should be dealt with. It also reminds us of the importance of reviewing and updating your will regularly.

Billings Lawyers have a wealth of expertise in Relationship Property, Wills and Estate planning matters. If you are in a de facto relationship, getting married, or separating, you need to consider what you want to happen to your property – contact us today – we are happy to discuss your options.

Contact: Alexa Carey | acarey@billings.co.nz | (06) 7573944

The content of this article is necessarily general and readers should seek specific advice on particular matters and not rely on this article.